The inventory turnover ratio indicates how rapidly inventory is sold.

Question

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The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory during a certain period of time. This ratio shows how many times the inventory has been sold and replaced during that period. Therefore, a higher inventory turnover ratio implies that the company is selling its inventory more frequently, indicating a more efficient use of its assets.

The Inventory Turnover Ratio Indicates How Rapidly Inventory Is Sold